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HK Ruokatalo is making a public tender offer to all small shareholders of Rakvere Lihakombinaat at a price of 4.70 kroons ($ 0.3) per share. The public tender offer will last from Feb. 1 until March 14.
This price is in accordance with the new takeover code prepared by the TSE but is less than the company's actual book value.
"We are following the regulation," said Simo Palokangas, CEO of HK Ruokatalo. "The local advisors set up the price for us. Its natural that there are different attitudes towards offers."
The price offered by the majority shareholder HK Ruokatalo exceeds the past 6 months' weighted average price of the share on the TSE by 31 percent. Many specialists believe the price should be around 8 kroons, as much as the company's owners' equity per share.
"There are a number of shares noted on the stock exchange with prices lower than the actual book value," said Alvar Roosimaa, securities specialist at the investment bank Suprema. "HK Ruokatalo should at the same time think about its image. Small shareholders buy sausages in shops as well," said Roosimaa. Rakvere Lihakombinaat has about 1,200 small shareholders.
HK Ruokatalo will then apply to take Rakvere Lihakombinaat from the TSE list after the end of the tender. The company's strategy foresees no dividends in the next couple of years.
Palokangas said that HK Ruokatalo is planning to invest 50 million to 60 million kroons in Rakvere Lihakombinaat.
"We make the most of the investments in the company's subsidiary Ekseko and the rest into development, because the company has to be in accordance with the regulations of the EU in order to get to the Western market," said Palokangas.
Because of the decreasing exports volumes to Russia and the Ukraine and the increase of Latvian customs duty, Rakvere Lihakombinaat lost about 50 percent of its exports during the first nine months of 1999. In 1998 the company's exports totaled 148 million kroons.
"The Russian crisis had a negative impact on Estonian and Baltic food investments. The Ukrainian market decreased due to devaluation of the ruble," said Palokangas. He said HK Ruokatalo could not acquire the whole company at once in August 1998 because of the Russian crisis.
The 1999 earnings for Rakvere Lihakombinaat will be announced on Feb. 28. Rakvere Lihakombinaat Group earned a 15 million kroon profit and 549 million kroon turnover for the nine months ending Sept. 30, compared to 664 million kroons a year earlier.